10-Year Bond Yield Surpasses 4% Again
"Temporary Decline in Bond Prices"
US Treasury yields, which had sharply declined amid expectations of a Federal Reserve (Fed) rate cut, are now rising rapidly. Some on Wall Street view the recent drop in bond prices as a buying opportunity, given that the US macroeconomic policy stance remains unchanged, with this year still considered the "year of rate cuts."
On the 5th (local time), the yield on the US 10-year Treasury note rose by 0.051 percentage points to 4.042%. This marks the first time since the 13th of last month (4.033%) that the 10-year Treasury yield has surpassed 4%. The 2-year Treasury yield, which is most influenced by Fed monetary policy, closed at 4.391% on the 5th, up 3.3% from 4.250% on the 29th of last month.
The 10-year US Treasury yield had exceeded 5% last October, reaching a 17-year high. However, it ended last year at 3.860% due to easing inflation and dovish (monetary easing-favoring) comments from the Fed.
The rebound in bond yields is largely driven by strong US employment data in December. Nonfarm payrolls increased by 216,000 in December compared to the previous month. This increase is larger than the gains in October (105,000) and November (173,000) of last year. This is seen as a signal that inflationary pressures may ease, which could delay the Fed's timing for rate cuts. The market expects the Fed to begin cutting rates in March.
When bond yields rise, bond prices fall. Experts see the recent decline in bond prices as creating a favorable environment for buying, Bloomberg reported on the 8th (local time).
Strategists at TD Securities told their investment clients, "The trend of a cooling labor market remains intact. We are confident that the 10-year Treasury yield will end 2024 at 3%." Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree, said, "The bond market has not lost its optimistic outlook on Fed rate cuts this year," adding, "A strategy of buying during temporary dips remains valid."
However, caution remains as bonds could still decline in the short term. One of the key indicators to gauge the Fed's future monetary policy, the Consumer Price Index (CPI) for December, will be released on the 11th (local time). According to a Bloomberg survey of economists, the CPI is expected to have risen 3.2% year-over-year. This is an increase from the previous month (3.1%) and could signal a pause in the inflation slowdown, potentially causing short-term adjustments in bond prices. However, Bloomberg noted, "Core inflation, which excludes volatile food and energy prices, is expected to ease to 3.8% from 4.0% in November."
Jin Tannuzo, Global Head of Fixed Income at Columbia Threadneedle, forecasted, "The 10-year Treasury yield could fall below 3.5% during the year," but added, "Yields will decline if inflation and growth slow down."
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